Intro to Microeconomics_Agnello_Date_031810

Intro to Microeconomics_Agnello_Date_031810 - Supply and...

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Supply and Demand and Government Policies Market outcomes (P and Q) not always popular Sellers don’t like low prices - complain about cut throat competition Buyers don’t like high prices - complain that they can’t “make ends meet” 2 ways government affects markets and thus changes outcomes 1) Government can shift (S and D) by passing laws (ex. tax laws) Equilibrium is changed. (P and Q may be different with government) Price system still does its job of equilibrating S and D 2) Price controls - ceiling or floor on prices prevents invisible hand (which uses the price baton) from equilibrating S and D (Table 1) More on #2 Government may control markets - price controls Price ceiling - cause shortage Price floor - cause surplus Price ceiling - illegal for P to exceed ceiling Need to compare price ceiling with equilibrium price to see effect (Table 2) If price ceiling is binding(Pc <Pe) then shortage results and price can no longer ration available Qs among demanders Other forms of rationing will develop
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Intro to Microeconomics_Agnello_Date_031810 - Supply and...

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